07 June, 2011,Minister of Finance and National Planning Budget Statement for Year 2011-12; presented to the Parliament of Tonga, Tuesday, 07 June, 2011.

Lord Speaker of the House,

Lord Prime Minister and Ministers of the Crown,

Honourable Representatives of the Nobles,

Honourable Representatives of the People and The People of Tonga,

Introduction

Great thanks to the God Almighty for His provisions, guidance and blessings bestowed upon us on this historical day.

It gives me great pleasure to present the 1st Budget of the current administration, with a mandate from the people and expectation for delivery.

Lord Speaker, I consider important that we all be reminded of our mutual rights and responsibilities under our Constitution:

Clause 18 of the Constitution:

“All the people have the right to expect that the Government will
protect their life liberty and property and therefore it is right for
all the people to support and contribute to the Government according to
law”

Lord
Speaker, This Government is to govern according to the will of the
people and to serve the people according to the Constitution and Laws of
Tonga. Accordingly, every Tongans has a mutual responsibility to
support and contribute to the Government according to the Constitution
and the Law.

Constitution Clause 19:

“No money shall be paid out of the Treasury nor borrowed nor debts
contracted by the Government but by the prior vote of the Legislative
Assembly”

The Public Finance Management Act Section 7, requires that I shall:

1)
Prepare and submit to Cabinet a statement of anticipated revenue for
the forthcoming financial year together with a statement of the
anticipated budgetary appropriations.

2)
Prepare the Estimates, in accordance with the Budget approved by
Cabinet, for introduction to the Legislative Assembly for the
forthcoming financial year.

3) Present the Estimates for the forthcoming financial year to the Legislative Assembly.

Lord
Speaker, His Majesty’s Cabinet has approved the proposed Budget
Estimates for 2011/12, and now submitted to the House for deliberations
and approval.

Allow me Lord Speaker to present to the House the Budget Estimates 2011/12.

Our Vision, Objectives and Strategies

Lord
Speaker, this Government has approved the vision that we will work to
realise: and this government will focus its efforts in the next four
(4) years, which is: “To develop and promote a just, equitable and
progressive society in which the people of Tonga enjoy good health,
peace, harmony and prosperity, in meeting their aspirations in life”

We
have approved the “Tonga Strategic Development Framework (TSDF)’ which
provides the overall framework to guide government activities and set
out the roadmap for the development of Tonga in the next (4) four years.

The framework established nine (9) priority outcome objectives for delivering this Vision.

The nine (9) outcome objectives focus on:

1. Strong inclusive communities;

2. Dynamic public and private sector partnership as the engine of growth;

3.
Appropriate, well planned and maintained infrastructure that improves
the everyday lives of the people and lowers the cost of business;

4. Sound education standards;

5. Appropriately skilled workforce to meet the available opportunities in Tonga and overseas;

The
implementation of this strategic framework is through detailed Sector
Plans, Ministries’ Corporate Plans, supported by Annual Management Plans
linked to the budget.

These
plans also set out activities that will put us on track to the
achievements of our Millennium Development Goals by 2015. This is a
progressive effort and we will continue to ensure that budget
allocations are linked to these plans. These plans will help us to have a
more focussed approach, cut back on waste, and better deliver our
vision and mandate.

Lord Speaker, we will deliver to achieve these outcome objectives.

The focus of our budget

This Budget is based and seeks to achieve these fiscal and macro-economic objectives:

I. To regain fiscal stability while enhancing service delivery in core areas

II. To increase growth by providing economic stimulus

It
gives particular focus on the following five (5) objectives which are
key areas of reforms in the next fiscal year. These include:

1. Improved Public Financial Management;

2. Confirmed core functions of government and improved public service; structure to improve government’s focus;

The corner stone of this budget is prudency and improved transparency.

We commit to our fiscal approach in ensuring:

* prudent budgets,

* prudent revenue system,

* prudent expenditure allocation,

* prudent debt management

This
continues the efforts started this year, by continuing to constrain
overall recurrent expenditure while focussing on the core functions of
government, and seeking improved revenue collection.

Our current fiscal situation and large debt cannot be solved in one (1) budget.

However,
our first budget, has been prepared within this longer adjustment
perspective, and start us on the path to a sounder financial situation.
This is what the 2011/12 Budget does.

Our
development partners will continue to provide budget support with the
development of a prudent and appropriate set of key government reform
indicators that support our ambitious reform program.

It
is only through strong inclusive and viable communities and a dynamic
public and private sector partnership that we can generate the growth
and welfare essential for us to succeed with our adjustment process,
while also delivering our Vision.

Lord Speaker, we will work hard to implement these reforms.

Economic Outlook

This
Government took office mid-way the 2010/11 Budget implementation, and
given the tight fiscal situation had limited scope for changing track.

We still at a challenging time for our country as the economy is still vulnerable to economic shocks and natural disasters.

These events have adversely affected our economy, but they will not knock it off.

Real GDP growth is forecast to 1.2% in 2011/12.

Lord
Speaker, this is in line with the economic growth target that His
Majesty delivered from the throne in His opening of the 2011 Parliament
session targeting a grow of 2.0% by 2013/14.

Lord Speaker, this government will work to achieve such target.

This
Government will continue to ensure improvements to the quality and
distributions of this growth so that it is not concentrated in any
particular group or area but are felt across the Kingdom where people
are still suffering from limited opportunities and the lower levels of
remittances.

Key sectors for driving this growth include:

Community based development initiatives;

• a vibrant Private Sector;

• Agriculture and Fisheries

• Tourism;

• Infrastructure Investment

• Energy and Water consumptions.

We
believe that a strong private sector will create job opportunities and
employments for our people especially our youth population thus release
them from underutilizing their knowledge and skills.

Inflation
is forecast to increase with higher world fuel prices and food prices,
but we will continue co-operation with the National Reserve Bank to
ensure inflation stays within a manageable level.

The
Pa’anga has been weakened against the main currencies. However efforts
will continue to manage the exchange rate appropriately, and ensure
adequate reserves at the level that will encourage and boost trades in
goods and services.

Tourism
is picking up and remittances have stabilized. However, agriculture
and fisheries still need more focus to restore opportunities for trade
and growth.

There
are both positive and negative signs in the global and regional
economies. These indicate the need to continue to be very prudent with
our finances.

Lord
Speaker, this Government increased focus on transparency,
accountability, improved governance and greater private-public
consultation as a result of the shift to a more democratic system of
government is expected to improve efforts to grow the economy.

Lord Speaker, we will increase growth for our country and ensure it is inclusive sustainable growth.

Prudent Finance

This
Government has managed the financial situation with care, and ensured
that we end the fiscal year with relatively sound fiscal situation
despite a short fall in the anticipated budget support.

Our
development partners recognize our situation and we appreciate their
willingness to increase direct budget support in future years, in
addition to ongoing project grants, to help us while we adjust our
fiscal position.

Lord Speaker, Tonga is not all alone in such dire financial situation, but it covers all our neighbouring countries.

We
have also inherited a large debt level and face increased debt
repayments making it very unwise to commit to any new borrowing until
our debt is back within acceptable limits. This severely limits our
flexibility to adjust to new challenges.

We
have been working hard during our first half-year in office to
establish a clear vision and outcome objectives. In addition to managing
the 2010/11 budget with care, we have established the 2011/12 budget on
a clear medium-term path of adjustment to a more sustainable fiscal
situation.

At
the same time, we are improving the focus on expenditure on core areas
and improving revenue, so that important expenditures can be protected
to maintain delivery of key services to our people, and promote an
environment in which government and the private sector can work more
effectively together to promote sustainable and inclusive growth.

Lord Speaker, we will regain fiscal stability while enhancing service delivery in core areas.

The new Budget Statement format;

• The detailed analysis behind the budget is contained in one Budget Statement document.

•
This Government has been working to improve the presentation of our
fiscal accounts so that we have a more transparent and accurate
presentation of all Government related fiscal activities.

• The actual path of expenditure (in-kind) for the Chinese loans is better documented.

•
This is important given the significant size of this loan and the
resulting impact of the timing of this expenditure on each year’s GDP.

•
The in-kind grant expenditure is better reported, and in future years
we plan to include it fully in government financial statistics (GFS),
rather than as a memo item as at the moment.

• This is consistent with our commitment to open and transparent government.

The Budget Appropriation 2011/12

Lord Speaker, The Total Appropriation is $210.4 million.

Of
which a total amount $170.9 million is proposed to be funded from
government revenue (comprised of $142.9m from Government domestic
revenue and budgetary supports of $27.9 m).

An estimate amount of $39.5 million is expected to be funded from development grants and other sources.

The
Government Fund Appropriation Budget 2011/12 (which includes budget
support) is in balance; excluding budget support there is a Budget
deficit of $27.9 million.

When in-kind grant funding of $134.2 million is included the total budget is $344.6 million.

The total of the Development Budget funded by development partners is estimated to be $173.5 million.

Of the estimated domestic revenue of $142.9m, about $109.7m (76.7%) are to be collected from Taxes and Duties.

Budgetary
supports are expected to be received from the World Bank $8.7 m,
European Union $12.8 milions, $6.5 milions likely to be funded from
Australia and New Zealand.

Of
the total budget expenditure of $170.9m, about $27.8m (16.3%) allocated
for Health and $22.6m (13.2%) are allocated for Education.

The
Ministry of Finance is shown a budget allocation of $50.1m (29.3%) but
that include a Government General Fund expenses of $23.9m (14%), to
cover for general government payments such as pensions, subsidies etc,
and Debt Servicing expenses of $18.2m (10.7%).

The
total expected grants (cash: $39.5m, and in-kind : $134.2m) from
development partners for specific projects constitute mainly for Capital
Expenditure (47.2%) and for Purchases of Goods and Services (36.7%).

This
means that our development partners, though grants and some remaining
loan draw downs, are funding nearly 60% of our total budget.

We expect to use $31 million from the Chinese loan in 2011/12 to complete existing road and building projects.

Once
this loan is fully drawn down, we will not be able to borrow further
for some years, so we will focus on maximizing the available grant
funding and putting it to productive use, meeting priority development
objectives throughout the Kingdom.

Equally important, we will devise a medium debt strategy to address and manage our high debt level.

Taking into account these loans, using the GFS analysis, there is an estimated overall deficit of $24.7 million

Lord
Speaker, again, we are committed and we will regain fiscal stability
while enhancing service delivery in core areas and increase growth, so
that we ourselves can fund more of our budget in the longer term.

Risks

Lord
Speaker, We recognised that our program is demanding and that risks
exist. We will ensure proper measures are in place to mitigate these
risks through commitment to strategic reforms and good governance.

The path for development

Lord
Speaker, we have established Outcome Objectives to guide government’s
activities and set out the roadmap for the development of Tonga for this
coming year.

We
will ensure Strong Inclusive Communities by engaging
districts/villages/communities in meeting their prioritized service
needs and ensuring equitable distribution of development benefits.

Lord
Speaker, People is the key to our success. We want prosperity and
opportunity to reach all corners of the Kingdom, especially our outer
islands, districts and villages. This is crucial to managing our
population growth and promoting sustainability right around the country.

Our
people need to have a greater say in our policy formulation and
decision making process in order for our policies to be well received
and implemented.

We
have allocated $1.7 million pa’anga for the first time, to provide a
specific Constituency Grants for particular development activities of
the constituencies.

We have approved a Community Driven Development Program for the communities, including working with the World Bank.

Lord
Speaker, our economy depends on the environment that the private sector
can flourish and generate jobs and income not only for our people, but
business and for the government also.

We
will ensure A Dynamic public and private sector partnership as the
engine of growth, is achieved by promoting better collaboration between
government and businesses, appropriate incentives, and streamlining of
rules and regulations.

We
will collaborate with private sector to improving output of the
productive sectors: tourism; agriculture; fisheries; and remittances and
seasonal work schemes.

Lord Speaker, as much as our need to grow our economy, we also have a great need to focus on improved productivity.

We
will ensure appropriate, well planned and maintained infrastructure
that improves the everyday lives of the people and lowers cost of
business by the adequate funding and implementation of the National
Infrastructure Investment Plan.

This
government will continue to ensure provision of primary education,
working in partnership with the churches and other groups for the
provision of secondary and technical education to promote, support, and
ensure improvement in education.

Lord
Speaker, we expect our people to be more skilful so that increasing
number of people will have the opportunity to get a job.

We
will ensure that we have a well educated and appropriately skilled
workforce to meet available opportunities in Tonga and overseas, by
delivery of improved Technical and Vocational Education & Training.

Lord
Speaker, in addition to our well educated and skilled population is the
need for healthy people to sustain our culture, environment, economy
and future developments.

We
will ensure improved health of the people, by promoting healthy
lifestyles choices, with particular focus on addressing non-communicable
diseases (NCD), and providing quality, effective and sustainable health
services.

Lord Speaker, our country is vulnerable to risks beyond our control that may hinder our inclusive developments.

Lord
Speaker, we will ensure cultural awareness, environmental
sustainability, disaster risk management and climate change adaptation
integrated into all planning and implementation of programs, by
establishing and adhering to appropriate procedures and consultation
mechanisms.

Lord
Speaker, we need the support, co-operation, and trust of our people to
drive the inclusive sustainable growth and developments for our nation.

We
will ensure better governance by adherence to the principles of good
governance, accountability, transparency, and rule of law.

We
will continue the work that has commenced to exercise prudent fiscal
measures and approach, and also working with the Parliament Public and
Finance Accounts Committee to improve public expenditure management and
accountability.

The
Anti-Corruption office will be set up and strengthen and ensure
application of Rule of Law, and also will continue implementing the
Constitutional and Political Reforms

We
will be developing an improved communications strategy, for our people
awareness of government activities and, with more transparent
publications and access to Cabinet decisions, government publications,
press releases, and allow government employees to share and clarify
relevant government policies and procedures.

Lord
Speaker, we want our people to live and enjoy our beautiful country
with no fear or insecure to anyone or any force in all aspects of life.

We will ensure safe, secure and stable society, by maintaining law and order.

We
will be strengthening the operation of the judiciary to enhance its
independence and carry out the mandate stipulated by His Majesty’s
speech from the throne in the opening of this Parliament session.

Conclusion

Lord Speaker, this government has taken the mandate from the people during a challenging time.

Efforts
by the past administration to stimulate the economy have held up GDP,
but at a price. This has limited our scope for future action.

We
have encountered natural disasters and could not escape the impact of
the Global Economic Crisis that adversely affected our economy.

Despite these, we shall never be discouraged.

We
have presented a budget that puts us onto a long term sustainable
fiscal path while protecting service deliver to our communities and
improving the foundations for growth.

We need sustainable and inclusive growth, rather than the non-sustainable and non-inclusive growth that particular

But
we are a resourceful people with a forward looking Monarch, a new more
democratic constitution, a sound cultural basis, a broad Tonga Diaspora,
and development partners willing to support us both with overseas
working opportunities and development assistance.

We need to do things for ourselves and our country before others can help us.

We
therefore call on all Tongans to be in harmony and stand up with good
hearts and minds to collate our talents and energy to help grow and
build our nation.

The
challenge may not so much external but more within among us to work
together in partnership, to develop and promote a just, equitable and
progressive society in which the people of Tonga enjoy good health,
peace, harmony and prosperity, in meeting their aspirations in life.